The ‘Unavoidable’ Budget

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Details of an emergency Budget predicted to contain some of the toughest measures since the end of the Second World War have been announced by the new Chancellor of the Exchequer.

In what he called 'The Unavoidable Budget', George Osborne claims lower Government spending rather than higher taxes form the basis of the changes.

Here is what the new coalition Government has decided should be done to try and drag the public finances back into some kind of order and an early indication of what it means for you.

• VAT is to rise from 17.5% to 20% from January next year. The Chancellor says that by the end of the parliament, this move will have generated £13bn in extra revenues. However, those items that do not currently attract VAT, such as children's clothing, newspapers and books, will remain exempt from the tax.

• Capital gains tax is to remain at 18% for low and middle income savers who pay the basic rate of tax. From midnight tonight, however, the rate for higher rate tax payers is to increase to 28%. The threshold for capital gains tax remains unchanged at £10,100.

• As had been widely reported, the income tax personal allowance is to be increased by £1,000, taking around 880,000 low earners out of the tax system. The rise in the threshold to £7,475 from April next year will be worth around £170 a year to 23 million basic rate taxpayers.

• No new increases were announced to the taxes payable on tobacco, alcohol or fuel.

• Public sector workers face a two year pay freeze, although the 1.7 million workers who earn less than £21K will be protected through a flat rise of £250 each year.

• A rise in the state pension age to 66 is to be fast tracked. The Chancellor has also promised to re-link rises in the basic state pension to earnings from April next year. A 'triple-lock' guarantee will see the pension rise by the greater of earnings, prices or 2.5%.

• The consumer prices index, rather than retail prices, will be used to work out rises in benefits, tax credits and public service pensions. However, pension and pension credit increase will remain linked to RPI.

• Tax credits to families earning over £40K will be reduced, while child benefit will be frozen for the next three years. However, the child element of child tax credit will increase by £150 above inflation next year.

• From January next year, banks will be charged a levy which is expected to generate £2bn in annual revenues for the Government. A green investment bank is also to be introduced.

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